The Nasdaq Dubai released on January 18, 2011, a consultation paper inviting all stock exchange stakeholders to provide comments to a number of proposed listing rule changes.
This is the second consultation paper issued since the rules were adopted in 2005.
The previous consultation paper, released somewhat cryptically in 2008, was largely perceived by stakeholders as a failure to either clarify the existing regime or to improve the conditions for listing to make the stock exchange more attractive to international and regional companies seeking to list – and thus help the Nasdaq Dubai to become the regional stock exchange that it has always aspired to become.
That first attempt was aborted.
Although it came just before preparations for the merger between the Dubai Financial Market and the Nasdaq Dubai began, neither the previous nor the current proposals should be viewed as preparations or responses to that or any other future consolidations, but as independent efforts on the part of Nasdaq Dubai to improve its own regime.
Instead, chances are that the departure of the previous General Counsel in 2009, and her replacement with Lanae Holbrook, whose pedigree for the job is unquestionable (she was Chief Counsel of NASDAQ OMX in Washington D.C.), had much to do with Ms Holbrook's predecessor's failure to address, through the more humble channel of regulatory changes, the issues that have been in the mind of Jeffrey Singer, Nasdaq Dubai's CEO, and his shareholders: Improving the stock exchange's liquidity without compromising its branding as an exchange governed by world class listing standards.
It seems Ms Holbrook and her team have delivered on that remit.
Form-wise, the stated objective is to improve the listing rules from a user point of view, with a layout that is logical and ordered to achieve a more intuitive, clearer and more streamlined set of rules than the current ones.
Substantively, the objectives are to conform the regime to international best practice and to "ensure an internationally competitive and accessible capital market".
This translates into a desire to improve liquidity, and it does so mostly by opening the exchange to small and medium cap companies, and by widening the set of parameters to demonstrate investor interest in the proposed issuer’s securities.
For example, the current market capitalisation requirement of US$50 million is retained, but an alternative of US$20 million in market cap is proposed to be provided (subject to a twelve-month "lock-in" of all pre-IPO shareholders).
Two further alternatives are also proposed: A profits test for companies with recorded profits in the three years prior to listing; and an assets test, aimed at companies that may not have three years of trading history (subject also to the lock-up requirement).
There are also new rules to facilitate, through clarity of regulation, the listings of oil & gas and mining companies.
The new rules also encourage greater investor participation in Nasdaq Dubai with the introduction of the concept of "Genuine Investor Interest":
A requirement that either 10% of an IPO should be set aside for retail clients or that there be a minimum of 400 holders immediately after the IPO.
The same retail set aside applies to secondary offerings but the minimum holder threshold is reduced to 100.
Other, more technical changes represent simply corrections to some oddities of the existing regime.
For example, the new rules make it clear that any listing will require a compliant prospectus – gone is the fictional possibility of doing an "exempt offer" with an "exempt offer document".
Also, the "sponsor regime" is replaced with an optional "lead manager" regime – a point of interest mostly to the investment banks that will help bring new companies to market.
Other changes provide remedies to regulatory ambiguities that Nasdaq Dubai has faced over the years.
For example, the exchange will have the explicit power to require listed companies to make disclosure to dispel market rumors (so called "false market" powers).
Yet other changes are simply bringing the exchange's post listing obligations for listed companies in line with widely accepted international standards for primary listings: For example, the requirement to publish quarterly accounts.
The new rules are expected to be formally issued sometime in the second quarter of this year.
Stakeholders are likely to welcome them broadly: They open the exchange to a much broader set of issuers than is currently the case and do so without compromising the quality of required disclosure.
No one should expect, however, for the changes to result in a rapid improvement of liquidity on the exchange: The real issue there is not the rules, but the competition among, and insularity of each of, the regional exchanges.
Only consolidation can properly address that challenge.
The writer is Partner, Dewey & LeBoeuf LLP (based in Dubai and London)
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